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WILL THE SHOP SAFE ACT CREATE MARKETPLACE ACCOUNTABILITY?

It's looking increasingly likely that, in one form or another, Congress will enact some type of legislation that attempts to stem the tide of counterfeit products available for sale on e-commerce platforms. From the SANTA Act, the SHOP SAFE Act, and the INFORM Customers Act, will Congress be able to coalesce around a single piece of legislation?

In May of 2021, the U.S. House of Representatives reintroduced the Stopping Harmful Offers on Platforms by Screening Against Fakes in E-Commerce Act (referred to as the “SHOP SAFE Act”). This bipartisan supported bill aims to protect consumers against harm from the online sale of counterfeit products. Unlike other proposed legislation, the SHOP SAFE Act, if enacted into law, will make e-commerce marketplaces more accountable for the sale and distribution of counterfeit goods using their platforms. Despite the optimism, however, some brand owners believe that the proposed legislation doesn’t quite go far enough. For those who haven’t yet had a chance to dive into the bill, here are the key highlights of the proposed legislation:

- Legal Liability. The bill will make online marketplace platforms contributorily liable when a third-party seller sells a counterfeit product that poses a risk to consumer health or safety and the marketplace platform fails to take required preemptive measures and retroactive enforcement actions enumerated in the proposed legislation. Seller Verification. The bill will require online marketplaces to verify the identities of every third-party seller as well as their place of business so that the seller can be served with an infringement lawsuit and prosecuted under US laws. This seller information must also be displayed on the marketplace's platform in a conspicuous place, generally where the seller’s name and other information is shown to the buyer.

- Requirement for Third-Party Sellers. The bill will also impose obligations on the third-party sellers including verifying the authenticity of goods they sell in connection with a registered mark, disclosing the country of origin, and manufacture of the goods sold and attesting to the online platform that the seller has taken reasonable steps to verify a product’s authenticity.

- Incentivizing Online Marketplaces. The bill will aim to incentivize online platforms to establish best practices to ensure their own legitimacy, removing counterfeit listings, and removing sellers who repeatedly sell fake goods.

- Adoption of Technical Measures. Finally, the bill will require online marketplaces to implement reasonable proactive technical measures to proactively screen their platform for the promotion and sale of counterfeit products.

While the proposed legislation has been welcomed by industry groups and brand owners, others are disappointed that the bill is too narrow in its application and that some of the provisions are ambiguous.

First, the SHOP SAFE Act is currently written to apply only to products that have a health and safety impact on consumers and not to all counterfeited products, generally. Brand owners who sell apparel, for example, would not see benefits from the legislation.

Second, while asking third-party sellers to verify their identities is a relatively straightforward requirement, there are limits on how much “verification” a marketplace platform can accomplish; for example, a seller may use a fake identification that the marketplace may not have a feasible, scalable, legal, or financially, viable means of detecting.
Third, there is a lot of ambiguity in some of the bill’s language. For example, the provision that requires marketplaces to verify “reliable documentation” belonging to the seller raises these questions:

  • What would constitute “other reliable documentation”?
  • What if the seller gives false verification or honestly believes the goods are authentic?
  • How often must the information be re-verified?

Some of these concerns may get addressed during the legislative process, as the bill is debated and amended in House committees and discussed by lawmakers. The good news is that Congress may finally be ready to take some type of action to protect consumers from fakes. However, it remains to be seen if making e-commerce marketplaces solely accountable for the sale of counterfeit goods on their platforms is the best strategy and if lawmakers have both the political will and understanding of how marketplaces operate, to produce lasting meaningful legislation with teeth – something that will greatly help protect brand owners and consumers.